What Is Marketing Mix Modeling?
Marketing mix modeling is an analysis tool that assists marketers in measuring the impact of their marketing efforts and attributing sales to particular marketing mix elements. It shows where marketers are finding success and where they are not, and helps analyze and justify marketing expenses. It also creates a model to predict future success and help marketers make decisions about how to move forward with their marketing mix.
How does marketing mix modeling work?
Marketing mix modeling aggregates data from every aspect of the marketing mix, which many refer to as the 4 Ps: product, price, placement, and promotion. Marketers collect this data across multiple years, accounting for changes in demand due to seasonality and economic changes. They then use a statistical analysis process called multi-linear regression to determine the relationship between variables and to create a model that helps attribute success, such as engagements or conversions, to the various aspects of the marketing mix.
Advantages of marketing mix modeling
Marketing mix modeling provides powerful benefits to marketing teams. It gives marketers a way to measure the return on investment (ROI) for their marketing expenses. It generates insight to assist marketing teams in refining their marketing and budgeting to support those activities which are most effective. Additionally, it provides a forecasting model to guide marketing decisions in the future.
Other attribution methods use third-party cookies in order to generate consumer specific data for attribution. While this method can be very useful, third-party cookies are not likely to last as a reliable data source due to growing data privacy concerns. Marketing mix modeling uses data on a broader scale and does not rely on third-party cookies.
Limitations of marketing mix modeling
Several factors limit the effectiveness of marketing mix modeling. First, the quality of the analyses will only be as high as the quality of the data used. If inconsistent or insufficient data are used, correlations may not be obvious or incorrect correlations may be made. Second, it takes time, and therefore, cannot process and generate insights in real time like some modern approaches to attribution. Marketing mix modeling can also be subject to errors. For instance, a correlation between variables may be incorrectly interpreted as causation when there is none.
Marketing mix modeling is a great tool for marketers looking for broad scale information about the success of their marketing mix. It can help marketers understand their ROI and make decisions about how to improve their marketing plan. While it has several limitations, it still holds an important role in marketing.